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Est. Vs. Actual for Q4FY25: NII – MISS; PPOP – MISS; PAT – MISS

Changes in Estimates post Q4FY25

FY26E/FY27E (in %): NII : -5.8/-7.6; PPOP: -14.2/-16.7; PAT: -17.7/-19.2

Recommendation Rationale

NIMs to take a hit owing to portfolio shift : With the cyclicality of the MFI portfolio, the management intends to further improve the share of the secured products in the portfolio to 55% by FY27 from ~50% in FY25. Given the portfolio skew towards lower-yielding secured portfolios, yield pressures surfacing is imminent. The yield differential between the EEB and non-EEB book is ~10%. Thus, margins are expected to contract by ~50-60bps over the next 3 years. However, NIMs would find some support from the improving CoF in the current rate-easing cycle. Bandhan has reduced its SA and TD rates (~30bps down from peak rates w.e.f May 1, 2025), and the benefit should reflect with a lag. The near-term margins will continue to face challenges with ~26% EBLR (primarily repo-linked loans) repricing downwards and expectations of higher slippages driving interest reversals. We expect some respite on NIMs in H2FY26, given CoF benefit reflecting and an anticipated slowdown in slippages. Currently, ~55% of Bandhan’s book is fixed rate, and 19% is MCLR-linked.

Asset quality disappointment continues: A majority of the slippages during the quarter were from the EEB pool. The overall stress level (SMA+NPA) in the EEB portfolio remains elevated at 11.7% vs 11.1% QoQ. Currently, ~25% of the NPA pool in the eEB segment is paying at least one EMI. Bandhan has seen a deterioration in the SMA0 in WB, which inched up to 2.3% vs 0.9% in Q3FY25, primarily driven by local disruptions and higher holidays in Mar’25. The management indicated that the bank has seen some clawback in terms of CE in the 1st week of Apr’25. The collection efficiency (CE) in the EEB portfolio has seen a slight improvement during the quarter, and similar trends have continued in Apr’25. The management expects credit costs to remain elevated in H1FY26, before gradually declining from H2FY26 onwards. With the improving mix of secured portfolio and receding EEB asset quality stress, Bandhan expects to limit its credit costs to 1.5-1.6% over the next 2-3 years vs 3.0% in FY25. However, the higher exposure to the EEB segment will continue to pose a risk to the consistency in asset quality performance delivery.

Sector Outlook: Positive

Company Guidance: Navigating headwinds in the EEB segment and gradually improving the mix of secured products to ~55% by FY27, the management has guided for a 15-17% CAGR credit growth over the next 2-3 years. Deposits growth will continue to outpace credit growth, thereby driving LDR improvement. The portfolio mix shift will exert pressure on NIMs. However, margins could find support from a decline in CoF, though with a lag. Investment in tech, franchise and branch expansion will keep Opex growth higher than income growth, thereby resulting in pressure on the Opex ratio. The C-A Ratio is expected to increase by 10-20 bps over the next 2 years. Credit costs improving from H2FY26 remains the only lever driving RoA improvement. However, RoA is expected to settle lower at 1.8-1.9% over the medium term vs earlier guidance of 2-2.2%.

Current Valuation: 1.0x FY27E ABV; Earlier Valuation: 1.1x Sep’26E ABV

Current TP: Rs 180/share; Earlier TP:  Rs 170/share

Recommendation: We revise our rating from BUY to HOLD, as we see limited upside from the CMP.

Alternative BUY Ideas from our Sector Coverage:

Ujjivan SFB (TP – Rs 49/share)

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